Thursday, January 22, 2009

Today we're going to take another quick look at price indexes, this time comparing what happened in the U.S. with what's happening in Canada. In an effort to compare apples to apples as best as possible, we're going to use two indexes with fairly similar methodologies, Case-Shiller from the United States, and Teranet's HPI here in the Great White North.

We took a look at the Canadian one Tuesday, and for the purposes of comparison with Case-Shiller, we'll be using the Canadian data with a shifted index point so that both have the same scale. For those who haven't seen the Case-Shiller index charted out, here's a look at it.

Yeah, that's a whole mess of lines... so for those interested here is a labelled version with each cities respective peaks. Might clear some things up slightly, but yeah, that's still a mess, but it's bound to be when you're charting out twenty cities and two composites. In any case, just sitting back and looking at the chart as a whole you can definitely see a general "bubble."

Now for the sake of simplicity, I'm just going to take four of those cities, one for the top, one from the bottom and a couple from the middle... and chart them against the HPI's for Vancouver, Calgary, and Toronto, whom seem to be the most talked about real estate markets in the country at the moment.

As you probably deduced, that U.S. markets have the dashed lines, and the Canadian markets are solid lines. Before you conclude our markets maybe were not as "bubbly" as those in the U.S., just bear in mind only L.A. and Miami were at that upper peak... and that the Canadian index doesn't include our "bubbliest" major centre right here in Edmonton. So if I just go ahead and add Edmonton's average price index to the chart we see this...

Keeping in mind the prior entries observation that the HPI was usually slightly lower then the average price index, but generally were pretty close... one can reasonable conclude that Edmonton quite likely would have an HPI of pretty damn close to that of Miami, if not even surpassing it. Unfortunately I don't have data for Saskatoon, as I believe theirs would have blown past even that of Edmonton's with their recent housing boom.

In any case, it's not too much of a stretch to reason that the bubble experienced here was just as substantial as that in the United States... we just seemed to have the boom start about 18 months later... and not surprising, the downturn start about 18 months later. For a better look at this we can shift the Canadian data back.

When you look at it this way, these Canadian markets fit right in. Obviously we see a bit more seasonality, particularly in Calgary as the lines aren't nearly as smooth as those of the American centres. I think that can be mostly explained by that house shopping in Miami and Phoenix in Winter versus the rest of the year probably isn't all that different an experience, Calgary on the other hand, it's a whole new, and cold, world.

Judging from the plunges in Miami and Phoenix have taken, it stands to reason that Calgary and Vancouver (and other markets that had big run ups, like Edmonton, Saskatoon and Regina) could very well have very similar busts ahead of them in the next couple years.

Toronto on the other hand didn't have as pronounced a "bubble"... but as you can see with Detroit's situation, that is no guarantee prices there won't plunge. Prices in Detroit are now well below what they were even in 2000, and that's ignoring inflation. But then again Toronto could weather it better and only experience a moderate drop, ala Chicago, whom they've been tracking pretty close through this point.

So for those who still think "we're different" here in Canada, or Alberta, looking at that graph I don't know what to tell ya. Taking into account that it didn't hit us until 18 months later, everything seems to be right on schedule. The boom lasted about the same amount time and was of the same magnitude, the cool down lasted about the same amount of time and was of the same magnitude... so considering we're joined at the hip with the U.S, Occums Razor seems to imply that the big drop is on the horizon.

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The information contained in this blog is my personal opinion, or in the case of comments, those of the commenter. All data, information, and analysis provided on this site is for informational purposes only, is provided “as is” with no warranties nor guarantees, and confers no rights. This information can not be considered as legal or financial advice, nor should it be relied upon as such.

P.S. Should I say something stupid, it’s important to be able to point out that said stupidity is mine, and mine alone. My stupidity! You can’t have it! Go get your own!